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PETITIONER: M/S. OBLUM ELECTRICAL INDUSTRIES PVT. LTD., HYDERABAD

       Vs.

RESPONDENT: COLLECTOR OF CUSTOMS BOMBAY

DATE OF JUDGMENT:       02/09/1997

BENCH: S. C. AGRAWAL, G. T. NANAVATI

ACT:

HEADNOTE:

JUDGMENT: Present:               Hon’ble Mr. Justice S.C. Agrawal               Hon’ble Mr. Justice G.T. Nanavati S. Ganesh and K.J. John, Advs. for the appellant A. Subba Rao,  Kishore Kumar Patel and V.K. Verma, Advs. for the Respondent                       J U D G M E N T The following Judgment of the Court was delivered: S.C. AGRAWAL, J.      The  appellant   is  a  manufacturer  and  exporter  of ’Lightening Arrestors’  which are  supplied  to  electricity boards, railways  and other public sector undertakings.  The appellant was  awarded a  Deemed Export  Order (Contract) by the Railway  Board for  supply 937  numbers of  Metal  Oxide Gapless Type  Lightening Arrestors  (hereinafter referred as ’lightening Arrestors’).  The said contract was entered into under  an   International  Development   Scheme.    For  the manufacture of Lightening Arrestors, Porcelain housing (H.T. Insulators) are  required and  those insulators are produced in a  ceramic kilns.  Crystar (main and Gross) Beams made of Silicon Carbide  are used  for ’firing’  dry and hollow H.T. Porcelain bushings  in the  kilns and  are fitted inside the kins.   The beams are susceptible to breakage and damage and have  to   be  continuously   replaced  in   the  course  of manufacture.      The applicant submitted an application before the Chief Controller of  Imports and  Exports on  March 29,  1990  for issuance of a Special Import Licence to import various items required for  the manufacture  of Lightening Arrestors.  The said items  included Crystar  Beams as  Kiln Furniture.  The Deputy Chief  Controller of  Import and  Export  issued  the Special Import  Licence on  April  24  1990  for  import  of various items  including crystar  beams.  Alongwith the said import license,  the Duty  Exemption Entitlement Certificate (hereinafter referred  as ’DEEC’)  was also  issued  in  the following terms:      "Material imported  against advance      Licence                         No.      P/L/3236631/CS.XX/16/H/90     dated      24.4.90  issued   by  Deputy  Chief

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    Controller of  Imports  &  Exports,      Hyderabad to the above importer and      covered by  the list  of  Materials      specified under  Part ’C’  of  this      Certificate would  be  eligible  fr      exemption from  Import duty subject      to the  conditions specified in the      Notification of  the Government  of      India,   Ministry    of    Finance,      Department of  Revenue and  116/88-      Cus. On 30.3.88."      On import  of goods  into India,  the appellant claimed duty free  clearance on  the basis  of exemption  granted by Notification No.210/82-Cus dated September 10, 1982.      By Notification  No.210/82-Cus dated September 10, 1982 issued under  Section 25  of  the  Customs  Act,  1962,  the Central Government  has exempted  from whole  of the customs duty and  additional duty  leviable under the Customs Tariff Act, 1975,  "raw materials  and components  required for the manufacture  of   goods  to  be  supplied  to  International Development   Association    or   international   Bank   for Reconstruction and Development or bilateral and Multilateral aided projects  or Asian  Development Bank or United Nations Organisation or  under  the  Aid  Programme  of  the  United Nations or  for  the  replenishment  of  raw  materials  and components of  used in the manufacture of such goods already supplied".   The said exemption was, however, subject to the conditions laid down in clauses (1) to (5) of paragraph 1 of the said  Notification.   The case  of the appellant is that the conditions  laid down  in  the  said  Notification  were fulfilled in  he present  case and, therefore, the appellant was entitled  to exemption  from duly  on the  Cryster Beams imported by  it and  reliance was placed on the DEEC granted by the  Import Control Authorities while granting the import licence for  importing the  said articles.   The  Additional Collector of  Customs has,  however, held  that the entry of Kiln Furniture (Crystar Beams) in the special import licence and DEEC book does not preclude the customs authorities from deciding the issue regarding eligibility of the articles for duty exemption in terms of exemption Notification No.210/82- Cus.   The Additional  Collector further  held that the said exemption is  only in respect of raw material and components of the  resultant product  to be  supplied  to  the  project authorities specified in the said exemption Notification No. 210/82-Cus.   Itself and  that  the  item  in  question  are admittedly   utilised    as   supporting    structures   for manufacturing Bushings and on account of bearing heavy loads and extremely  high temperatures  undergo high  rate of wear and tear  and that  they are  capital goods  and  cannot  be termed as  raw materials or components of the said resultant product.  The said view of the Additional Collector has been upheld by  the Customs  Excise &  Gold  [Control]  Appellate ’Tribunal [hereinafter  referred to as the Tribunal’] by the impugned judgment  dated November  5 1992.  The Tribunal has held that the question regarding exemption from duty and the interpretation of  the notification  issued under Section 25 of the  Customs  Act  has  to  be  decided  by  the  customs authorities alone  and the fact that the import of the goods was covered  by the  specific mention  in Part C of the DEEC has  no   bearing  on   the  jurisdiction   of  the  customs authorities because  exemption from  duty is on aspect while validity of  import under  the  import  license  is  another aspect.   The Tribunal  has also agreed with the view of the Additional Collector  that the expression "raw materials and components required  for the  manufacture of the goods to be

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supplied"   in    Notification   No.210/82-Cus   read   with Notification No.  116/88 dated  March  30,  1988  cannot  be extended to  include  within  it  scope  raw  materials  and components required  for a  Kiln or  a furnace  in which the goods to be supplied are manufactured.  Hence this appeal.      Shri S.  Ganesh, the learned counsel for the appellant, has urged that the appellants are entitled to exemption from payment of  customs duty  on Crystar  Beams imported by them both on  the basis  of Notification No.210/82-Cus as well as Notification No.  116/88 dated  March 30,  1988. As  noticed earlier, Notification  No. 210/82-Cus  dated  September  10, 1992 contained  the expression  "raw material and components required for  the manufacture  of goods"  and  "or  for  the replenishment of  raw materials  and components  used in the manufacture of such goods".      In Notification  No. 116/88  dated March 30, 1988 there is slight  difference in  language The  material part of the said Notification is as under:      "In   exercise    of   the   powers      conferred  by  sub-section  (1)  of      section 25 of the Customs Act, 1962      [52 of 1962] and in supersession of      the Notification  of the Government      of  India   in  the   Ministry   of      Finance,  [Department  of  Revenue]      No.44/87-Customs  [G.S.R,  101(E)],      dated the  19th February, 1987, the      Central Government, being satisfied      that it  is necessary in the public      interest so  to do,  hereby exempts      goods imported  into India  against      an Advance Licence issued under the      Imports (Central) Order 1955, being      materials required  to be  imported      for the  purpose of  manufacture of      produce [hereinafter referred to as      the    resultant    products]    or      replenishment of  materials used in      the manufacture  of  the  resultant      products, or both, or for export as      manufacture   of    the   resultant      products, or both, or for export as      mandatory  spares   alongwith   the      resultant products,  for  execution      of one  or more export orders, from      the whole  of the  duty of  customs      leviable thereon which is specified      in  the   First  Schedule   to  the      Customs Tariff  Act,  1975  [51  of      1975] and  from the  whole  of  the      additional  duty  leviable  thereon      under section 3 of the said Customs      Tariff Act",      Notification   No.116/88-Cus    uses   the   expression ’materials required  to  be  imported  for  the  purpose  of manufacture of  products [hereinafter  referred  to  as  the resultant products]  or replenishment  of materials  used in the manufacture of resultant products or both."      Shri Ganesh  submits that  on a  proper construction of the  language   used  in  Notification  No.210/82-Cus  dated September 10,  1982  Crystar  Beams  should  be  treated  as components  required   for  the  manufacture  of  Lightening Arrestors and  would fall  within the ambit of the exemption granted  under   the  Notification   No.  210/82-Cus   dated September 10,  1982.  The learned counsel has contended that

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the  words  "required  for  the  manufacture"  In  the  said notification  would   include  material   which  though  not directly used in the manufacture of product is necessary for the purpose  of manufacturing  the product.  Shri Ganesh has also urged that in any event Cryster Beams would fall within the ambit  of  the  expression  "materials  required  to  be imported  for   the  purpose  of  manufacture  of  products" contained in  Notification No.116/88-Cus  dated   March  30, 1988 because  the words  "for the purpose of manufacture" in the said notification have the effect of enlarging the ambit of the  exemption that  has been  granted.   In this context Shri Ganesh  has pointed  out that in the DEEC reference has been made  to Notification  No.116/88-Cus, dated  March  30, 1988.      Shri Subba  Rao, the  learned counsel appearing for the Revenue,  has  placed  reliance  n  the  definition  of  the expressions "exempt  materials" and "materials" contained in clauses (iii)  and (viii) of the explanation to Notification No.116/88 dated March 30, 1988.  The said clauses provide as follows:      "(iii) Exempt  materials’ means the      materials imported and specified in      Part ’C"  of the  said  Certificate      and  eligible  for  exemption  from      duty under this notification;      (viii) materials  means goods which      are  raw   materials,   components,      intermediate      products       or      consumables used in the manufacture      of  resultant  products  and  their      packings, or mandatory spares to be      exported  alongwith  the  resultant      products."      Shri Subba  Rao has laid emphasis on the words "used in the manufacture  of in  clause (viii) and has urged that for availing the  exemption it  is necessary  that the  material must be  required for  use in  the manufacture  of resultant products.   Shri Subba Rao has also invited our attention to the decision of this Court in The Tata Oil Mills Co. Ltd vs. Collector of  C. Ex. 1989 43 ELT. 183, wherein in the matter of interpretation  of a notification granting exemption from payment of duty this court had said :      "But, in  trying to  understand the      language  used   by  an   exemption      notification, one  should  keep  in      mind two  important aspect  (a) the      object   and    purposes   of   the      exemption and (b) the nature of the      actual  process   involved  in  the      manufacture  of  the  commodity  in      relation  to   which  exemption  is      granted".      Having  regard  to  the  fact  that  in  DEEC  specific reference has been made to Notification No.116/88-Cus, dated March 30,  1988, we will consider the claim of the appellant for  exemption   for  duty   on  the   basis  of   the  said notification.      A perusal  of Notification  No. 116/88-Cus.  shows that the object  and purpose  of  the  said  notification  is  to encourage exports by granting exemption from customs duty on materials that  are required  to be imported for the purpose of  manufacture   of   the   resultant   products   or   for replenishment of the material used in the manufacture of the resultant products,  or both  or  for  export  as  mandatory spares alongwith the resultant products.  The manufacture of

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the resultant  products has  to be  for execution  of one or more export  orders.   In order to ensure that the exemption is availed  only by  deserving people,  conditions have been laid down in clauses (a) to (g), which must be fulfilled for availing the exemption.  One such condition, as laid down in clause (a)  that is  that  the  material  imported  must  be covered by  a Duty  Exemption Entitlement Certificate issued by the licensing authority.  Under Clause (c) it is required that the  goods corresponding  to the resultant products and the  mandatory  spares  would  be  exported  with  the  time specified in  the DEEC  or such  extended period  as may  be granted by  the licensing  authority.   The  wordings in the notification have  to be construed keeping in view that said object and  purpose of  the exemption.   In the notification two different  expressions have  been used namely, materials required to  be imported  for the  purpose of manufacture of products’  and  ’replenishment  of  materials  used  in  the manufacture of resultant products’ which indicates  that the two expression  have not  been used  in the same sense.  The expression  ’materials  required  to  be  imported  for  the purpose of  manufacture of  products’ cannot be construed as referring  only   to  materials   which  are   used  in  the manufacture of  the products.   The  said exemption  must be given its  natural meaning  to include  materials  that  are required in order to manufacture the resultant products.  On that view,  the exemption  cannot be  confined to  materials which are  actually used in the manufacture of the resultant product but  would also  include materials  which though not used  in  the  manufacture  of  the  resultant  product  are required in  order to  manufacture  the  resultant  product. Crystar Beams imported by the appellant are materials, which though  not  used  in  the  manufacture  of  H.T.  Porcelain Insulators required  for Lightening Arrestors, are materials which are  required for  producing  the  insulators  in  the kilns.      It is  true that in clause (viii) of the Explanation to the Notification  expression ’materials’ has been defined to mean goods which are raw materials, components, intermediate products or consumables used in the manufacture of resulting products and  their  packings  or  mandatory  spares  to  be exported in the resultant products.  But the said definition in the  Explanation has  to be  read in  consonance with the main part  of the  notification.    It  is  a  well  settled principle of  statutory construction  that  the  Explanation must be  read so  as to  harmonise with  and  clear  up  any ambiguity in  the main  provision. [See:  Bihta  Cooperative Development Cane  Marketing Union  Ltd. & Anr. vs.  The Bank of Bihar  & Ors.  1967(1) SCR 848 at p.854].  The definition of "materials"  in clause  (viii) of  the Explanation  must, therefore,  be   so  construed   as  not  to  climinate  the distinction between  the words  ’materials required  for the purpose of manufacture of products’ and the words ’materials used in  the manufacture  of the  resultant products’ in the main part of the definition.      On a  proper construction the definition of "materials" in Clause  (viii) of the Explanation must be confined in its application  to  the  word  "materials"  in  the  expression ’replenishment of  materials used  in the manufacture of the resultant products’  in  Notification  No.116/88-Cus.  dated March 30, 1988.      It is  not disputed  that appellant  had fulfilled  the conditions laid  down for  grant of  exemption contained  in clause (a) to (g) of the Notification No. 116/88 dated March 30, 1988.   In  the circumstances,  it must be held that the appellant was  entitled to  exemption from  customs duty and

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additional duty  under Notification  No. 116/88  dated March 30, 1988  on the  import of  Crystar Beams.   The appeal is, therefore, allowed,  the  judgment  of  the  Tribunal  dated November  5,  1992  as  well  as  the  order  of  Additional Collector (Customs) dated march 8, 1981 are set aside and it is held  that the  appellant is  entitled to  exemption from payment of customs duty and additional duty on the import of Crystar beams  required for  the purpose  of manufacture  of Lightening Arrestors.  No order as to costs.